online business

The rice business

Many researchers have little appreciation of the rice industry as a business. It has been shown that the consumers have their preferences, which the processors seek to satisfy. The farm production sector supplies the raw material to the processors. This supply and demand system is however often distorted by political policy. The consumers demand a steady supply of good quality rice products at reasonable prices, the farmers want the highest prices for their harvest, and the processors and traders have to make a living in between. Meanwhile the government's policy is to import cheap rice for consumers, maintain a high local farm gate price for paddy, and leave the processing sector to the market forces. This uncertainty provides little incentive for the private entrepreneurs to invest in more efficient processing technologies. Big business has shied away from the rice processing business in countries like the Philippines, and therefore public sector research has to provide the small entrepreneurs with the technology.

Opportunities in the rice business. To illustrate the rice business, let us analyze the case of a typical Filipino rice farmer and private sector processing enterprise. Rice farms in the Philippines are covered by the agrarian reform law, and the law has effectively dismantled the feudal landlord and tenant relationship, where the landlord owns the land and the farmer is a sharecropper. The average land holding is about 3 hectares, and the average scale of rice farming for most of Southeast Asia. The farm gate price of freshly harvested wet paddy ranges from $0.17 per kilo to $0.31 per kg depending supply and demand of rice in the market. Paddy pricing is very speculative, and when business intelligence indicates a shortage, prices of paddy at harvest shoot up. The farm yields of farmers also varies widely, but a farmer planting the high yielding variety and following recommended practice can easily produce 4 tons per hectare.

Consumer Market Orientation. Different consumer groupings depending on their economic status have their distinct preferences. In the Philippines, for example, where the high yielding varieties dominate in the market, it has been found that restaurants prefer the fluffy grains, and the rural consumers prefer the more sticky varieties. Fluffiness or stickiness depends on amylose content, and consumers associate this trait with rice. The Philippine rice consumers' quality criteria in order of importance are variety, purity, whiteness of polish, extent of broken grains, and presence of contaminants such as paddy seeds, weed seeds, stones, and yellow grains.

There exits a set of official grades and standards, but the trade follows more informal and subjective guidelines. In the export trade, buyers set their own specifications based on their market. Prices are diverse depending on the quality of the milled rice. In the Philippines for example, the National Food Authority's imported rice for mass distribution is priced at $0.39 per kg, and the premium grade intended for the higher end market is priced at $0.51 per kg. Packaged, and graded rice for the class-A markets is priced in the supermarkets at $0.77 kg. With this price spread, It should pay to produce the highest quality rice.